Russ Kinnel examines what fund categories did well and which ones lagged in the first part of 2018.
Russ Kinnel: Fund Winners And Losers From The First Half Of 2018
The first London Value Investor Conference was held in April 2012 and it has since grown to become the largest gathering of Value Investors in Europe, bringing together some of the best investors every year. At this year’s conference, held on May 19th, Simon Brewer, the former CIO of Morgan Stanley and Senior Adviser to Read More
Hi I'm Christine Benz from MorningStar.com mutual fund investors have seen volatility in both their stock and bond portfolios so far in 2018. Joining me to provide a midyear recap of the action and mutual funds is Russ Kinnel. He's director of manager research from Morningstar. Russ thank you so much for being here. Glad to be here. Russ let's start by talking about bonds because even though we have a few days to go here in the first half of 2018 it does seem that some of the losses that mutual fund investors have experienced have been concentrated in their bond holdings. First what's going on in the bond world that has led to losses in bond funds. Well we're seeing signs of rising inflation and the Fed is responding by raising rates. And so we're seeing the long end of the bond world sell off in anticipation of more rate hikes and possibly more inflation. You know we've had we've talked about the smooth ride in equities even smoother and fixed in handling for shares barely noticed any bumps and so way and so it hasn't been a disaster but a lot of bond funds are in the red this year. OK in terms of the types of bond funds that have gotten hit the hardest so far in 2018 where have those losses been concentrated. You mentioned long term has been the hardest hit spot. That's right. So if you have a long and like Treasury bond or a lot of muni funds are longer term those may be down 1 or 2 percent this year and there may be doing the worst emerging market bonds have also done poorly.
Okay in terms of the types of bond funds that have held up relatively better can you talk about those up naturally at the other end of the yield curve. So bank loan funds which ratchet up their rates as as interest rates rise and therefore aren't really affected by rising rates. Those are doing our best ultrashort bonds and short term bonds because obviously they have very little interest rate exposure and then sort of in between the good and the bad is intermediate term bonds which have lost more than them and they're in the red. About one and a half percent as we speak. But we've got a couple of days left in the month. If investors are looking at their bond holdings how should they be approaching them. I think some investors are very fearful about what might be next for the bond market. Right obviously bonds are more concerned investment may be a place you go to if you need emergency cash. But I do think you should have a plan that allows for these kind of blips. I mean we're talking about for the most part funds that are down 1 or 2 percent. That's really minor. That's a regular occurrence so you certainly shouldn't be surprised by that and it shouldn't be something that upsets your plan. So I think for sure it's signals that there could be some more headaches along the way. And you have to have a robust plan. I think it makes sense to be diversified makes sense to be aware of what kind of.